Lesson 3.6: Simple Interest Problems

Lesson 3.6:

Simple Interest Problems

Definitions:

Simple Interest: Interest that is applied only to the initial investment is called simple interest.

Compounding Interest: Interest that builds on itself (charges interest on the interest) is called compounding interest.

Principal: The initial amount you invest is the principal.

Interest Rate: An interest rate is a fixed rate used to calculate interest on the principal.

Interest Amount = Interest Rate X Principal X Years

​Key Concept:

​Simple interest represents a proportional relationship between the yearly interest and the principal or the initial amount. The ratio of yearly interest to principal is the interest rate.

How will we use this and what is this similar to?

●Similar to percent change problems

○Like markdowns and markups, except now we are finding out how interest will cause change

●We will use this to calculate how money “grows”

○Ever heard the expression “Money doesn’t grow on trees”, well it doesn’t it “grows” from
interest.

​Your bank account starts with 10 dollars and after 2 years it has 12 dollars in it. Find the interest rate for your bank.

​Interest Amount = Interest Rate X Principal X Years

Multiple Choice

Your bank account starts with $20 and after 5 years you have $30. What is the simple interest rate?

• 0.1%

• 10%

• 20%

• 30%

​Monica deposits $200 into an account that pays 1.5% simple interest annually. Jerry deposits $150 into an account that pays 2% simple interest. After 5 years, who will have more money in their account?

​​Interest Amount = Interest Rate X Principal X Years

Multiple Choice

Edward deposited $6,000 into a savings account 4 years ago. The simple interest rate is 3%. How much money did Edward earn in interest?

• $720

• $6,720

• $180

• $6,180

Suppose you deposited $200 in a savings account 4 years ago. The simple interest rate is 3.3%. The interest you earned in those 4 years was $26.40. Which of the following are true?

• Principal = 3.3%, Interest = $26.40, Time = 4, Interest Rate = 200

Interest Amount = Interest Rate X Principal X Years

​Conclusion: Write two complete sentences about what you learned.

​Rate Yourself:

​​4: I understood this so well, I knew how to do the problems without Mr. Carbone teaching me how to do them.

3: I did pretty well on this assignment, after Mr. Carbone taught me how to do it I had very few errors.

2: I did ok on this assignment, I had errors finding my answers, but after seeing the teacher do it I could recreate their work.

1: I did not follow on this assignment. Without Mr. Carbone showing me every step I would not be able to solve these problems.